Mark Warner is not officially running for President -- not yet. But make no mistake, the former Virginia governor is in the hunt for the 2008 Democratic nomination. Since leaving the statehouse in Richmond in January, the 51-year-old Warner has been making the rounds in Iowa and New Hampshire and his political action committee raised more than $9 million through July. Adding to that war chest is Warner's personal wealth -- estimated at $200 million -- earned by brokering deals between bidders for new federal cellular licenses. As governor, Warner focused on balancing Virginia's budget and cutting red tape. Though Warner raised taxes and vetoed a repeal of Virginia's estate tax, business groups tended to give him high marks for promoting business growth, particularly in depressed rural areas. Writer Jeremy Kahn sat down with Warner to ask him about the relationship between government and small businesses.

How as governor did you try to balance the interests of small business versus big business?

When we moved most commodity purchases such as paper and stationery to a state Internet purchasing portal, we definitely got some pushback from local businesses that lost out. Also, nothing drove me crazier than going into a small town and seeing state offices spread all over town with no notion of shared space, no notion of economies of scale. So we hired professional real estate management people to come and look at our real estate portfolio. You talk about some of the leases we found: a local ABC store having a lease that hadn't been reviewed in years or various state agencies having 20 separate leases with a landlord where if you consolidated them all we could save money. Now that caused a lot of heartache. Nothing like the local landlord who happens to be the local big donor to the local state legislator being madder than heck. But, you know, you have to be a good steward.

You took some flack from the larger small-business groups for raising taxes. I was wondering how you defend that decision.

The only business group that actually stepped up against us was the National Federation of Independent Business, whereas the state and local chambers of commerce actually endorsed our tax reform plan. Matter of fact, we would not have been successful if we hadn't had the virtual unanimous support of the business community on tax reform. And what was at stake was we had a structural deficit. It wasn't an ideological issue here: The revenue lines and the expenditure lines weren't ever going to meet. We made preserving our triple A bond rating a rallying cry that, beyond businesses, Virginians kind of understood. I don't think people are as reflexively antitax as they are feeling that their tax dollars aren't well spent.

What about regulation? I know as governor you signed a law that gave small businesses a break on red tape. Could that be done at the federal level?

I would put myself in the deregulatory category with the caveat that there are areas where we still need government setting the standards. We're still waiting for electronic medical records standards to be set for the health care industry, which could save us 6 to 8 percent of our health care costs. And I think the chemical industry would actually welcome regulation on what the safety standards should be for chemical plants.

You haven't declared yet but you certainly seem to be exploring the idea of running for President. So what would an entrepreneurial presidency look like?

Well, I think it would be refreshing. It would be somebody who would be willing to look at new ideas regardless of who they came from. Take energy policy. We have looked at energy policy mainly from the standpoint of a threat. We have global warming. But rarely has there been someone who has connected the dots between national security and American job creation. If we did coal gasification and carbon sequestration right, not only could that create American jobs, what amazing leverage that would give us with China, which is on the path to become a bigger user of coal than we are. We might even save the planet along the way. So hopefully an entrepreneur would bring an approach that would look past the traditional silos of government.

Before you were a governor you did some venture capital funds including some that were aimed at fostering business in areas in Virginia that had been hard hit by economic downturns and the end of sort of the textile industry and tobacco's downturn. Some people would say that that is exactly how it should be: let the private sector figure out how best to allocate capital and risk and let the government stay out of it. I am curious what your view is of that and do you see a role for government in fostering entrepreneurship?

I think the best role for government in the creation of intellectual capital is basic research. I think there is also a role for government to, and this is sometimes at the state level as opposed to the federal level, to make sure that ideas that start in the lab can make it into the marketplace as quickly as possible. That means working through a more streamlined university patent process and more streamlined FDA process. I don't think government should be picking the specific market application winners or losers, but if there was, for example, government funds that could be used to spur innovation creation in targeted areas, for example, alternative energy research or nanotechnology -- ideas that are both potentially good in terms of business growth but are also policy goals for the country. I think there is a very appropriate role for government funds there.

Should the state use its purchasing power to try to help out small businesses and if so what happens when the small business isn't always the lowest bidder?

Oh boy, that is a real tough issue. When we came in to reform government we saw we had approximately 220 separate uniform contracts and we weren't leveraging our purchasing power. We took it down to like 15. Now the key I find is to make sure of those 15 you still have small and minority businesses represented. But it is a constant tension and you know I think we did all the best evidence was that we have demonstrable savings that approached north of $100 million on our purchasing and at the same time we quadrupled the amount of minority business that was done with the state. Now let me quickly put a footnote here that the state had done such a poor job before that it went from super crummy to only crummy. There was more room for improvement. But we seemed to able to sort through that. But you have got to able to spend a lot of time with it to get it right.

Is there a challenge out there that affects entrepreneurship that is not being talked about and that you think government should be talking about?

In our immigration debate right now we are losing sight of the notion of the very important value of legal immigration to this country -- you know, more H1B visas and more student visas. To continue to attract the best and the brightest from around the world is critical to the creation of intellectual capital. If you look at how many foreign-born entrepreneurs there are in this country, I mean it is a huge number. That ought to be encouraged.

And then I think the bigger issue not only for entrepreneurs but broader, I think one of the things we desperately need in this country is a clearly articulated national competitiveness strategy. And I think it would include eight components: education, research and development, energy, health care, trade, infrastructure, workforce development.

That's only seven.

It's only seven?


I said eight but of course I didn't. What did I just forget?

Let's see: education, research and development, energy, healthcare, trade, infrastructure, workforce development. Seven.

Press aide: Fiscal meltdown!

Warner: Oh, fiscal meltdown. Yes! Sorry! Fiscal policy. You got to put fiscal in there. Yes! That old deficit thing in there!

I guess the question is, yeah, well, the question is how do you deal with the seven while dealing with number eight?

We were able to deal with the fiscal problems in Virginia because we did two things first. One, we cut government. Second, we reformed. And then when we said 'OK, folks we still have a structural deficit,' people were willing to step up and yes, at the end of the day, some people paid a little bit more. But they saw that it wasn't about growing government. It was about, it was about, basically, what I think a fiscal conservative is somebody who pays your bills and meets your obligations. I said to the people of Virginia, 'If you don't think the state ought to fund 50 percent to pay for 55 percent of public education, that's fine, let's change the rules.' But let's not say we're doing something and then not do it.